Blog Bite: Does your contractor own the IP developed during the term of their agreement?

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This article provides a good example and reminder that when employees resign and enter into consulting agreements with their former employer, it is important to ensure that all restrictive covenants continue in effect, and that the consulting agreement contain an IP transfer agreement similar to the one contained in the employment agreement.

Two (2) companies claimed to own patents and other rights in systems and devices for testing blood samples. They competed directly with each other. Their claims stemmed from the actions of one employee (later a consultant). This employee had worked for company ‘A’ for 15 years. He then resigned and entered into an 18-month consulting agreement with the company. The consulting agreement continued several of the restrictive covenants of the employment contract, including confidentiality, non-solicitation and non-competition obligations.

The non-competition covenants were to expire 18 months after the execution of the consulting agreement, which expired at the same time. Unlike the employment contract, the consulting agreement did not include any assignment of patents or ownership rights in IP developed during the term of the consulting agreement. A few months after the consulting agreement expired, the consultant filed patent claims, which he subsequently assigned to a company later acquired by company ‘B’, the other party to the lawsuit.

The court held that the consultant retained ownership in the IP developed over the time of his consulting services with the company, because he had not assigned it to them under the consulting agreement. Since the employment contract had expired, and the nature of the relationship between the parties had changed, the court declined to ‘read the employment contract terms into’ the consulting agreement.

Take away:

• When employees resign and enter into consulting agreements, it is important to ensure that all restrictive covenants continue in effect, and that the consulting agreement contain an IP transfer agreement similar to the one contained in the employment agreement.